Aussie dollar underperforms as other majors surge

The Australian dollar played second fiddle as the British Pound surged overnight and the US dollar remained under pressure.

“The fact that the Aussie under-performed so spectacularly when the pound surged and the Euro, Yen, and Swiss Franc all gained, is a warning that even if the US dollar is under pressure, the other key drivers of the Aussie are not supportive of gains in the current environment,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

The Aussie dollar sits at 0.7552 this morning, which is down a little more than 30 points from where it was around this time ye​​sterday.

According to McKenna, the continued collapse in base metals and iron ore prices is proving to be a major weight on the Aussie dollar.

He also noted that while the Aussie didn’t reap the full benefits of the upside for iron ore (in previous months) it is certainly the case that the turn in iron ore is a weight on the Aussie, particularly in traders’ minds.

From his perspective, McKenna said the fall in stock prices, the rise in gold and the weak emerging market currencies are signs that risk appetite among investors has taken a hit.

“We all know that as an off-index play, the Aussie hardly ever does well in times of heightened market tension,” McKenna said.

At the same time, McKenna said the British Prime Minister’s announcement of a general election for June 8 “has added another layer of uncertainty for traders who have the French election coming fast at them, continued posturing on the Korean peninsula and a new flash point in Turkey to worry about.

“It all sounds dire at the moment, doesn’t it. And this is not a good environment for the Aussie dollar,” he said.

In the meantime, McKenna said the underperformance of the Aussie and the level where it currently sits may be a good thing for the Australian economy in general.

He cited the Reserve Bank of Australia (RBA) minutes confirmed his initial thoughts that the RBA is worried about labour market softening, low inflation, moderate growth, and is struggling hard to restrain housing.

But the very last sentence in the minutes which said, “The Board judged that developments in the labour and housing markets warranted careful monitoring over coming months” suggests that if housing can be restrained the RBA has a much more dovish tone than even I thought, McKenna said.

Naturally, last week’s employment data will be an important salve to their concerns. But we’ll have to see what the next – March – jobs data says.

“That’s important because as the world’s big central banks think about how they will exit the emergency measure instituted after the GFC the RBA might yet go the other way,” he said.

********

About AxiTrader

Back in 2007, AxiTrader was founded on a simple idea: to be the broker we’d want to trade with. We’ve since grown to become one of Australia’s largest and leading Forex brokers. Investing in over-the-counter derivatives carries significant risks and is not suitable for all investors. You could lose substantially more than your initial investment.